The rebates coming from the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act are a welcomed relief for millions of Americans out of work and in financial distress due to the COVID-19 pandemic. But, if you’re fortunate enough to be comfortably employed, here are three suggestions for using this rebate to enhance your financial well-being.
The importance of having enough money in case of an emergency cannot be stressed enough. The COVID-19 pandemic has shown that things can change very quickly, and without an emergency fund, it is easy to spiral down a dark path of unhealthy credit card debt or suboptimal 401(k) loans. We believe it is good practice to keep 3 to 12 months of expenses in an emergency fund, depending on your level of job security and income variability.
If you have ample emergency savings in place, consider investing the rebate. It can be scary to invest when the stock market is down 20% or more. However, historical data shows that after market declines, the average gains in subsequent years can be relatively robust. That suggests it may be a particularly good time to put your money to work for long-term goals by investing it in the stock market.
Average Stock Market Returns After Decline
The CARES Act provides a small tax incentive by giving a tax break for donations up to $300 to a qualified 501(c)(3) charity even if you take the standard deduction. Many charities have created special funds to support seniors, the homeless, and other vulnerable members of our society during the COVID-19 pandemic.
You can also support workers that are fighting the pandemic on the frontlines. University hospitals have created COVID-19 Response Funds where you can donate, and many charities are accepting donations to provide meals to healthcare workers while also supporting local restaurants.
Donations are not the only way to help those in need. Small businesses are some of the most heavily impacted by the COVID-19 pandemic. Consider supporting your local businesses by making purchases at their stores with part of the rebate.
As always, you should speak to an advisor about the specifics of your situation in detail so they can provide the most suitable advice for you. Contact a Petersen Hastings advisor by calling 509.735.0485 or visiting our website at petersenhastings.com.
Disclosures
Past performance is no guarantee of future results.
Periods in which cumulative return from peak is -10%, -15%, or -20% or lower and where a recovery of 10%, 15%, or 20% from trough has not yet occurred are considered downturns. For the 10% threshold, there are 3,442 observations for 1-year look-ahead, 3,396 observations for 3-year look-ahead, and 3,345 observations for 5-year look-ahead. For the 15% threshold, there are 3,175 observations for 1-year look-ahead, 3,167 observations for 3-year look-ahead, and 3,166 observations for 5-year look-ahead. For the 20% threshold, there are 2,561 observations for 1-year look-ahead, 2,560 observations for 3-year look-ahead, and 2,560 observations for 5-year look-ahead. 1-year, 3-year, and 5-year periods are overlapping periods. The bar chart shows the average returns for the 1-, 3-, and 5-year period following market declines. Data provided by Fama/French, available at mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Short-term performance results should be considered in connection with longer-term performance results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.